Winning Bizness Desk

Mumbai. The Indian government is likely to question major e-commerce platforms Amazon and Flipkart over alleged violations of foreign investment regulations. According to sources quoted by Reuters, officials from both companies could soon be summoned for an inquiry as part of the ongoing investigation. Recently, the Enforcement Directorate (ED) conducted raids on sellers associated with these companies, suspecting that Amazon and Flipkart might be controlling inventory through select sellers, which would breach foreign investment laws. Under Indian regulations, foreign e-commerce platforms are only allowed to function as marketplaces and cannot hold inventory.

ED Raids and Investigation Findings

Following last week’s raids on sellers linked to Amazon and Flipkart, the ED is reportedly preparing to summon officials from both companies. During the raids, ED seized documents which are now being examined to check for evidence of foreign investment law violations. Preliminary findings suggest the companies may indeed be infringing on these rules. As part of its inquiry, the ED is also expected to analyze business data from these sellers and review communications between the sellers and Amazon or Flipkart over the past five years. The investigation aims to uncover if the companies exerted control over inventory through certain sellers, which would give them a competitive advantage and possibly sidestep regulatory limits on foreign investment in e-commerce.

Foreign E-Commerce Regulations in India

India’s regulations for foreign e-commerce platforms are strict. These companies are not permitted to own inventory and can only act as digital marketplaces. The rule ensures that foreign e-commerce platforms do not directly compete with local retailers by holding and selling products themselves. Despite these restrictions, Amazon and Flipkart have grown quickly in India’s vast e-commerce market, which is valued at about $70 billion (around Rs 5.91 lakh crore). Data Intelligence reports that in 2023, Flipkart held a 32% market share in India’s e-commerce sector, while Amazon captured 24%.

Possible Implications

If the investigation finds Amazon and Flipkart in violation of foreign investment laws, both companies could face fines or more restrictions on their operations in India. This scrutiny reflects India’s focus on creating a level playing field for local businesses by ensuring that foreign players adhere strictly to regulations. The government’s actions signal an increased vigilance toward foreign companies and a commitment to enforcing compliance in India’s rapidly expanding digital economy.